Tullow Oil has been given a major boost and its shares have recovered strongly after it was invited by the government of Bangladesh to finalise a production-sharing agreement for two key exploration areas onshore Bangladesh.

Tullow shares have weakened in recent months on delays over the allocation of the various blocks in the area and a dispute between Tullow and two American oil giants, Chevron and Texaco, over the share each company should have in Blocks 9 and 11.

The American companies wanted 60 per cent while Tullow was only willing to concede 45 per cent.

Now Tullow seems to have got its way. Chief executive, Mr Aidan Heavey, said that the company has been asked to make itself available at short notice to conclude production sharing agreements for Blocks 9 and 11 with joint venture partners Chevron and Texaco as well as a syndicate comprising Mobil, Malaysian state oil company Petronas and Babex, the operating arm of the Bangladeshi company Petrobangia.

Mr Heavey said that Tullow is now willing to give up half of its 90 per cent interest in the licences to the joint venture partners, but will remain as operator for the two blocks. He said that, once the production sharing contracts are signed, 10 wells will be drilled on Block 9 at a total cost of $50 million and four wells on Block 11 at a cost of $20 million.

Tullow will be responsible for its full 45 per cent share of these exploration costs, but Mr Heavey said that this commitment will not be a problem for the Irish company. "We will have cash flow coming in from our Pakistan operations this year and cash flow from the Ivory Coast will begin next year. We also have cash in the bank, so we are in a solid position," he said.

Mr Heavey said that exploration will be comparatively low-cost as the licences are onshore - Block 9 covers an area around the capital city Dhaka - and that any discoveries would be cheap to develop. He added that Block 9 is a key development for the company. "It has good potential and development costs are low, so we would be able to supply gas very cheaply," he said.

Tullow has also indicated that it also plans to sell off its interests outside the Indian sub-continent and Africa. These assets include gas production in the UK and the proceeds will further boost Tullow's financial position.

This licensing round in Bangladesh has been intensely competitive, and has attracted most of the major international oil and gas companies as well as a group of independent operators like Tullow and the British group, Cairn Energy, which was awarded Block 5.

Tullow shares rose sharply in both Dublin and London, and closed up 23 1/2p in Dublin on 151 1/2p. In London, almost 3.4 million Tullow shares traded as the share rose 18 1/2p to 133p sterling.

At this level, Tullow shares have regained most of their losses this year. But analysts have warned that the positive developments in Bangladesh make Tullow an even more attractive takeover target. At yesterday's closing price in Dublin, the company is worth just under £350 million.